Penalties on underpayments from Americans who pay some or all of their income taxes quarterly instead of through paycheck withholding are increasing thanks to interest rates, The Wall Street Journal reports.
The group includes many investors, retirees, business owners and gig workers who aren’t employees, and some others who are. For example, two-earner couples or staffers with stock options could also owe penalties if they aren’t withholding enough. Second-quarter amounts are due June 17.
“These charges can hit hard, so getting it right can save people hundreds or even thousands of dollars a year,” says Richard Pon, a CPA in San Francisco with many clients who pay quarterly.
The average estimated-tax penalty in fiscal-year 2023 climbed to about $500 from about $150 in 2022, according to Internal Revenue Service data. Meanwhile, the number of affected tax filers rose to 14 million from 12 million. Overall, the agency assessed $7 billion in estimated-tax penalties in 2023, nearly four times the $1.8 billion it assessed in 2022.
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